Sebi and regulations

Vishnu ThankachanS3 , MBA

NO. 29

• Securities and Exchange Board of India (SEBI) was set up in 1988 to regulate the functions of securities market.• SEBI promotes orderly and healthy

development in the stock market but initially SEBI was not able to exercise complete control over the stock market transactions.

The Organisational Structure of SEBI:

• SEBI is working as a corporate sector.• Its activities are divided into five departments. Each

department is headed by an executive director.• The head office of SEBI is in Mumbai and it has branch

office in Kolkata, Chennai, Ahmedabad and Delhi.• SEBI has formed two advisory committees to deal with

primary and secondary markets.• These committees consist of market players, investors

associations and eminent persons.

Purpose and Role of SEBI:

SEBI was set up with the main purpose of keeping a check on malpractices and protect the interest of investors. It was set up to meet the needs of three groups. 1. Issuers:For issuers it provides a market place in which they can raise finance fairly and easily. 2. Investors:For investors it provides protection and supply of accurate and correct information. 3. Intermediaries:For intermediaries it provides a competitive professional market.

Objectives of SEBI:

1. To regulate the activities of stock exchange.

2. To protect the rights of investors and ensuring safety to their investment.

3. To prevent fraudulent and malpractices by having balance between self regulation of business and its statutory regulations.

4. To regulate and develop a code of conduct for intermediaries such as brokers, underwriters, etc.

Functions of SEBI:

The SEBI performs functions to meet its objectives. To meet three objectives SEBI has three important functions. These are:

i. Protective functions ii. Developmental functions iii. Regulatory functions.

1. Protective Functions:

• These functions are performed by SEBI to protect the interest of investor and provide safety of investment.

As protective functions SEBI performs following functions:

• It Checks Price Rigging• It Prohibits Insider trading• SEBI prohibits fraudulent and Unfair Trade Practices• SEBI undertakes steps to educate investors so that

they are able to evaluate the securities of various companies and select the most profitable securities.• SEBI promotes fair practices and code of conduct in

security market.

steps

• SEBI has issued guidelines to protect the interest of debenture-holders wherein companies cannot change terms in midterm.• SEBI is empowered to investigate cases of

insider trading and has provisions for stiff fine and imprisonment.• SEBI has stopped the practice of making

preferential allotment of shares unrelated to market prices.

2. Developmental Functions

These functions are performed by the SEBI to promote and develop activities in stock exchange and increase the business in stock exchange. Under developmental categories following functions are performed by SEBI:• SEBI promotes training of intermediaries of the

securities market.• SEBI tries to promote activities of stock exchange

by adopting flexible and adoptable approach.

flexible and adoptable approach

• SEBI has permitted internet trading through registered stock brokers.• SEBI has made underwriting optional to

reduce the cost of issue.• Even initial public offer of primary market is

permitted through stock exchange.

3. Regulatory Functions:

These functions are performed by SEBI to regulate the business in stock exchange. To regulate the activities of stock exchange following functions are performed:• SEBI has framed rules and regulations and a code of

conduct to regulate the intermediaries such as merchant bankers, brokers, underwriters, etc.• These intermediaries have been brought under the

regulatory purview and private placement has been made more restrictive.

• SEBI registers and regulates the working of stock brokers, sub-brokers, share transfer agents, trustees, merchant bankers and all those who are associated with stock exchange in any manner.• SEBI registers and regulates the working of mutual

funds etc.• SEBI regulates takeover of the companies.• SEBI conducts inquiries and audit of stock exchanges.

Objectives of the two Committees are:

• To advise SEBI to regulate intermediaries.• To advise SEBI on issue of securities in primary market.• To advise SEBI on disclosure requirements of companies.• To advise for changes in legal framework and to make

stock exchange more transparent.• To advise on matters related to regulation and

development of secondary stock exchange. These committees can only advise SEBI but they cannot force SEBI to take action on their advice.